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The NCAA imposed one of the harshest penalties in history for one of the worst scandals in the history of college football in the wake of a sex abuse “conspiracy of silence” that reached the top of the institution. Let’s first prioritize. Most important is helping the criminally victimized children and preventing future abuses. Obviously, no NCAA sanctions can completely heal the damage to those victimized by Jerry Sandusky or the school’s failure to cut the cancer from the system. But at least $60 million will be allocated to an endowment fund for the victims of sexual abuse. And obscured in the flurry of discussion is NCAA’s ongoing monitoring function. Specifically, the NCAA will have an “academic integrity monitor of NCAA’s choosing”, which hopefully will be used to make sure current and future coaches are subject to every available diagnostic tool to assure emotional and mental fitness by coaches or those otherwise affiliated with the athletic program.

Penn State will certainly recover from the $60 million fine. That is essentially one year’s worth of PSU gross revenue in conjunction with another $13 million of other sanction-related costs. And this is not a lump sum expenditure that really hurts Penn State’s cash flow. The funds come from a university savings account at a rate of $12 million a year over 5 years. There will probably be alumni and boosters rallying around the program who may cover part of the shortfall. If there is a lack of funds to hire or retain assistant coaches, other schools have created nonprofit organizations that actually received IRS tax exemptions to equalize an imbalance in coach funding. Supporters of Penn State may do the same. Ironically, PSU may now have a broader base for charitable donation than before the scandal. It may attract not only its traditional football boosters, but also those who support the charitable cause who are not otherwise football supporters.

Secondarily, the punitive measures will probably severely impact PSU for six to eight years. Every PSU player is now an unrestricted free agent. They can transfer to any other school of choice and play immediately. They are exempt from the NCAA rule that would require a one-year waiting period. I believe the adverse impact is likely V-shaped. That is to say, the team will not be drastically worse this upcoming season, but will get much worse for several years before it gradually gets better. This year Penn State may still win 5-6 games because most of the upperclassmen may stay, with more seniors staying put than juniors.

Seniors will stay because (1) they only have two weeks to decide on another school, (2) they only have one year of eligibility so there is too much change for too little impact, (3) the elite programs they would elect probably have already used their allotted scholarships, and (4) they may have a competitive disadvantage relative to players at the transfer school since the other players had far more than two weeks to learn the system and establish goodwill with the coaching staff. I suspect there will be slightly more attrition for juniors because they will have more time to assimilate into a program, play in bowls and compete for championships; thus a larger potential benefit compared to the detriments of leaving Penn State.

But the precipitous drop is likely to start after next year. For the following two or three years the current crop of freshmen and sophomores would typically have their greatest impact on program. That is when the lack of talent would be most exposed. Every year, winning coaches are asked why. Their beaming answer almost always includes, “because we had playmakers”, i.e. a few difference makers who made game-changing plays to win an otherwise close game. Penn State will probably have fewer of the highly coveted and sparse playmakers over time. Each of the next four years, they have 10 fewer scholarships per year than every other team they compete against.

A related concern is the length of scholarship loss and bowl ban. The cumulative effect of four straight years of non-competitiveness is of greater impact than considering a year-by-year snapshot. If you are buying a company and confine yourself to one year scrutiny, it may not look as bad as when you see financial statements of four straight years of losing compared to the market. A recruit that sees four-plus years of mediocrity will like the consistent winners even more and the disparity grows. For them, it not lonely at the top – it’s fun.

So even four years down the road, the impact of these sanctions will likely affect upcoming recruits. Those are the players that are supposed to be high impact seniors four years hence – 8 years from now. If you are one of the top players in the nation, you have options. So why would you start at a school where you are absolutely prohibited from playing in a bowl game even for one or two years when you have no prohibition elsewhere? That impacts high school seniors even six years from now. Why choose a school with even two years remaining on the bowl prohibition if there are comparable schools with no ban at all?

Then there is one word that codifies an under-appreciated factor in winning– depth. Penn State strives to be an elite football power. Elite programs consistently win all but a few games almost every year. Every year key players get injured. To maintain that high level of consistently the team must be able to bring players off the bench who can maintain that high level without much drop off in execution. Even if Penn State does not miss on player talent (and they have a razor thin margin of error there), the impact of four years of significantly reduced scholarships almost assures a lack of depth during those years.

Yet another issue is whether the Penn State administration will find the balance to be among the football elite while also increasing institutional control of that program. To meet the NCAA edit to change from an “athletic culture” to one that will subrogate football to the human interests of youth, will the program be so micro-managed and funds so diminished that the coaches will leave for greener pastures? Some say a fish rots from the head down. Others say success and failure start at the top. The most powerful teams in current big time college football pay their coaches more than the Governor of the state and any other state employee. None of those coaching staffs remained successful without a high level of support and autonomy, much like Paterno had at Penn State.

That said, if Penn State was publicly traded, I would buy it. I would incur the risk that a historic blue chip program will regain its luster just as I have bought blue chip stocks when they hit a historic low. I know the comparison is a bit tortured. The NYSE is not rampant with companies that were entrusted with the care of youth and covered up a key executive’s 42 child abuse crimes. But I admit investing in certain investment banks that admitted fraud costing taxpayers billions of dollars, and they became profitable again well beyond my initial cost. The fundamental notion is that most historic blue chips stay that way over the long term.

How much of the Penn State plasma is attributable to its blue-chip tradition? No one knows for sure. This is uncharted territory. But for decades, within the state of Pennsylvania and the northeast, there has been no replacement. The stadium is among the largest in the country. The Big Ten conference is still one of the big six. The players will still be on a big stage. They can still be seen on television. The head coach Bill O’Brian can still say “I’ve taught Tom Brady (albeit as an assistant) and other professional players. I can do the same for you.” And if we believe parents influence their children; that the football doesn’t fall far from the goalpost, and then parental love of those Nittany Lions becomes a family tradition, and blue chip offspring bleed Penn State blue. So I would buy it cheap with low immediate expectations. But it will appreciate over time and is a good long term investment.